The shale revolution destroyed one set of assumptions about American energy. LNG may be preparing to destroy another.
From LNG El Dorado to the Shale Revolution
Fifteen years ago, North America was any LNG seller’s wet dream. It looked like the biggest payday in the history of the business. North American gas production was declining, while the market needed natural gas like a man needs a breath of fresh air. A vast number of LNG import-terminal projects appeared on drawing boards across the continent.
Henry Hub prices shot above $13/MMBtu in 2008, making even the rustiest import scheme look like a golden ticket. Developers filed proposals for more than 40 import terminals—so many, in fact, that you might have imagined every cow pasture along the Gulf Coast eventually sprouting a regasification tower.
There was talk of a new El Dorado. Every LNG exporter worth his heat exchangers salivated at the prospect of dumping vast quantities of superchilled gas into a market that, surely, would continue paying stellar prices forever. Qatar even dedicated roughly a third of its substantial LNG capacity to the United States. They did not merely build receiving terminals; they even helped create an entirely new class of LNG supercarriers.
Look at the US this year, and the joke has almost written itself. The country is not merely a net gas exporter. The US gas market is on its way to becoming the first genuine 1 tcm/a gas behemoth on Earth. Emissions are at their lowest point in living memory. And the price of natural gas has remained so low for so long that people are talking about a new industrial revolution.
Cheap energy, as it turns out, has a rather seductive way of attracting energy-hungry industries. They are flocking back to the Lower 48. Steel plants in Ohio, fertilizer manufacturers in Louisiana, and petrochemical complexes along the Gulf Coast have all clawed their way back from the dead.
Meanwhile, Europe—still chained to its green fantasies and the remnants of its Russian-pipeline dependency—watches its industries wither.
The Revolution Nobody Saw Coming
What we have been looking at so far was only the last fifteen years of US gas history. The full story stretches back much further. There have been shifts, sudden developments, unexpected reversals, and all manner of surprises. None, however, has been quite as significant as shale gas.
In less than a decade, America vaulted from hand-wringing about gas dependency to slapping LNG export terminals onto practically every suitable stretch of Gulf Coast marshland. The knock-on effects rattled the global energy chessboard. Qatar not only lost market share in Asia but also its crown as the undisputed king of LNG. Gazprom’s pipelines suddenly looked less like lifelines and more like nooses. And Europe discovered, rather belatedly, that it had options other than bowing eastward.
But the shale revolution has not yet played all its cards.
There are a lot more surprises in the store. So buckle down for the ride, because you may be in for a rather massive surprise.
Most people certainly did not see shale coming when it was still in its early years. There were, of course, a few who could see the lone rednecks hacking away at the problem. They tried to make shale work, but most observers assumed it would never amount to anything.
And yet, as crazy as it sounds, shale was not a surprise at all.
It did not sneak up in the dark while everyone was looking the other way. It did not leap out of some dim back alley and scare its victims into instant paralysis. Rough men and hard-hitting innovators had been wielding the shale cudgel for many years.
What do I say? Decades.
This was not new at all.
Mitchell Energy spent two decades fracking its way perilously close to bankruptcy before finally cracking the Barnett code. For years, shale was the punchline at Houston cocktail parties—a poor man’s science experiment destined for dusty trade journals and the professional equivalent of a sympathetic pat on the head.
And yet it was precisely those scrappy, ridiculed experiments that eventually rewrote the global gas map.
We have known about the existence of shale oil and gas for a very long time. Almost as long as we have understood the use of oil as a feedstock for energy applications. Kerogen wells—the precursor stage of crude oil—were being drilled in Austria as far back as the late nineteenth century.
People knew it was there.
They knew it might be possible to exploit commercially.
And they tried to prove their assumptions wrong.
The resource was there. The question was whether anyone could find a way to turn it into a money-spinner.
The Gauntlet of Innovation
Most radical innovations do not spring out of nowhere like a Jack-in-the-Box and immediately take the world by storm. Innovators go through a veritable Spiessrutenlauf—a running of the gauntlet—for many years.
Sometimes for decades.
Eventually, however, the day arrives when an idea gains critical mass. Or when it acquires the kind of momentum that allows it to grow exponentially. That moment is usually invisible while you are approaching it. Afterwards, everyone insists it was obvious.
One such idea is the use of LNG as a fuel.
It would be an ideal replacement for pretty much everything diesel does today. It is already happening in the shipping world. With the advent of the new IMO 2020 rules, heavy fuel oil became unusable for many vessels—or usable only at the price of very large financial investments.
Today, container giants such as CMA CGM already sail with dual-fuel LNG engines, while cruise liners run on gas and spare their Caribbean passengers the unmistakable perfume of bunker fumes.
Shipping grabbed the LNG torch.
Trucking, meanwhile, has largely continued sniffing diesel exhaust as if it were still 1979.
The LNG Road Still Waiting to Be Taken
Where the LNG revolution remains very much in its infancy is as a fuel for trucking.
Oh yes, it is there. There is a rough network of LNG fueling stations in parts of the United States right now. Yet in the grand scheme of things, LNG remains a fairly exotic option for truckers.
And it has been for many decades.
LNG has been used as a vehicle fuel for more than fifty years. There is therefore a thick body of expertise and accumulated knowledge behind it. If you go down the LNG route, you are not staring into some black hole filled with unsolved technical problems.
You are looking down a well-trodden path.
Pretty much all the important issues have already been resolved.
Early believers, innovators, and entrepreneurs have travelled that path. Most notable among them was Mr. T. Boone Pickens and his company, Clean Energy. They resisted the devils of failure for a very long time.
They are on the right side of history.
Like shale, the groundswell behind LNG as a fuel is building until the moment is right for it to go big.
But why has that moment not arrived yet?
After all, gas has been cheap for years. The technology is beyond mature. A wide variety of natural-gas vehicles are available. And, not to forget, the environmental credentials of methane are remarkably solid.
Some die-hard environmental ultras will never be happy, of course. They would rather plaster entire regions with bird-, bat-, and insect-shredding windmills, or transform them into glistening beryllium deserts instead.
As so often, the problem is not the technology.
It is the rulebook.
When the Rulebook Becomes the Problem
One of those nonsensical rules is the interdiction against transporting LNG in railway tank cars.
Those railcars are designed and manufactured to transport cryogenic fuels. LNG can already be transported in road trailers. It can even be carried in ISO containers mounted on flatbed railcars.
So, in the end, it does not seem to be the fact that LNG gets moved around that arouses the ire of those guarding the rulebook.
It is the fact that it cannot be moved in rail tank cars.
Those are built for precisely this purpose. They have stood up to more stringent safety tests than any gasoline or diesel railcar ever has. Or, indeed, than many of the petrochemical railcars that rumble through neighborhoods all the time.
Those are, unlike LNG, actually dangerous.
When a trainload of vinyl chloride derailed in East Palestine, Ohio, it turned into a slow-motion ecological horror show. But LNG, which vents harmlessly as methane, is somehow considered too frightening for a rail tank designed to carry liquid hydrogen.
The rulebook, in other words, is not really about safety.
It is about bureaucrats protecting yesterday’s fuel.
The Retrofit That Never Happens
Another example is the apparent impossibility of retrofitting a diesel engine into a gas-diesel engine.
Many trucks built and rated for diesel could be adapted. They could run on a diesel/methane mixture, with methane constituting by far the larger share of the fuel. Only a small fraction of diesel would be required for ignition.
These trucks would become dual-fuel vehicles capable of using LNG—at least wherever LNG is available. They could satisfy roughly 90% of their fueling requirements with LNG and revert to full diesel operation whenever LNG was unavailable.
And the conversion is relatively cheap.
That takes care of a great many problems in long-distance trucking, particularly with Class 8 trucks.
These are examples where quick and decisive action by the administration could achieve rapid results. Results that would make life in the United States better in many ways.
The choice, however, is not merely about fuel.
It is about whether America keeps its industrial edge—or drifts back into dependency.
Next week, we will look at the levers that could flip LNG from a curiosity into a cornerstone.
